Wednesday, May 9, 2012

Why Charlie Munger is Wrong; Civilized People Do Buy Gold

By Gary North

"Gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but civilized people don't buy gold – they invest in productive businesses." ~ Charlie Munger

Charlie Munger is Warren Buffett's partner. He is 88 years old. You can see his remark in this brief extract from an interview on CNBC.

That sounded clever. But cleverness can conceal a great deal.

Jews in Vienna were civilized people. Uncivilized people had been running the government ever since March 1938. The Nazis were in charge.

The trouble facing civilized people who are under the control of uncivilized people is that they suffer from an illusion. They don't understand the degree to which the uncivilized people are uncivilized.

Munger should have been more specific. The hypothetical Jewish family in question should have done a lot more than sew gold coins into their clothes in 1939. The head of the household should have sold his house and his business. He should have transferred all of the family's assets to Switzerland, England, or the United States. Then he should have directed the family to pack their bags and follow their money. After August 31, 1939, this became illegal. World War II broke out.

They should have begun the process no later than March 12, 1938, the day Germany's troops crossed the border. Here's why, according to Wikipedia.

Devoted to remaining independent but under considerable pressure from both Austrian and German Nazis, Austria's Chancellor Kurt Schuschnigg tried to hold a referendum for a vote on the issue. Although Schuschnigg expected Austria to vote in favour of maintaining autonomy, a well-planned coup d'tat by the Austrian Nazi Party of Austria's state institutions in Vienna took place on 11 March 1938, prior to the referendum, which they canceled. They transferred power to Germany, and the Wehrmacht troops entered Austria to enforce the Anschluss. The Nazis held a plebiscite within the following month, asking the people to ratify the fait accompli. They claimed to have received 99.7% of the vote in favor.

I shall now tell a story known to a handful of people. It is the story of a man wise enough to get out: the Vice Mayor of Vienna, a long-term opponent of the Nazis. His name was Ernst Winter.

On the day the troops marched in, Winter sat down with his teenage son, Ernest Florian Winter, and told him that he was leaving. He did not say where he was going. He told his son to burn all of his papers. His son said that there was not enough time. His father then revealed why he was a man of great wisdom.

Son, this is Saturday. No bureaucrats work on Saturday or Sunday, not even Nazi bureaucrats. They will arrive here on Monday morning. They will arrest you, but they will not be able to hold you. You are 14 years old. They will release you soon enough. When they let you go, you will leave the country. I will contact you later.
They had a place outside Austria where they had already planned as an escape haven.

It happened exactly as the father described.

I was told this story in the late 1990s by the son.

The son later married the daughter of another man who took his family out of Austria: Col. Von Trapp.

It gets even more interesting. Years later, I asked him how his father had escaped. He told me that he had headed where the Nazis would not have thought to look: into Germany. As the troops were crossing the border into Austria, he headed in the other direction. He had contacts in Germany who took him in. Then, when the search for him grew cold, he headed for the agreed-upon destination. The family wound up in the United States.

Read the rest here.

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